As interest rates rise, Biden administration will reduce the cost of some mortgages by $800 per year

The premium is a monthly fee that homeowners with FHA-insured mortgages pay to have their loans insured, and is paid on top of their monthly principal and interest payments.

“Today’s announcement is an important step in making homeownership more attainable,” the Biden-Harris administration said in a statement. “This cost-lowering measure will make buying a home more attainable and affordable for more low- and middle-income borrowers.”

More than 80% of FHA borrowers are first-time home buyers, the government added, and over a quarter are buyers of color.

The average home purchased with an FHA-insured mortgage is on average less than $270,000. In contrast, the median price of an existing-home in the U.S. was $359,000.

Lowering the mortgage insurance premium by 0.3 percentage points helps homeowners save $900 per year if they buy a home with a $300,000 mortgage, and as much as $1,500 per year if they take out a $500,000 mortgage, the government said.

The move to reduce premiums is aimed to help consumers balance the rising cost of mortgages. Would-be buyers are facing higher mortgage rates, with the 30-year averaging at 6.62%, according to the latest data from the Mortgage Bankers Association. The rise in rates adds hundreds of dollars in interest to buyers’ costs.

“The lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers, providing critical relief from the steep rise in mortgage rates and home prices just in time for the spring buying season,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.

According to the government, FHA-insured mortgages accounted for 7.5% of home sales in the third quarter of last year.

FHA insures loans typically have a small down payment. The down payment can be as low as 3.5% of the purchase price.

These loans also have “more flexible underwriting, enabling families to begin building wealth through homeownership earlier than they otherwise might and providing an open door to credit-worthy borrowers,” the White House statement said.

“Homeownership is currently the principal source of wealth creation for most American households,” the statement added. “But due to a nationwide shortfall in the supply of affordable homes and shifting demand for housing during the pandemic, first-time homebuyers have struggled in recent years to achieve homeownership.”